Non-Compete Agreements Cannot be "Reasonable-ized" by Court--Even with the Parties' Consent

Yesterday, the Supreme Court stiffened its stern treatment of non-compete agreements. At issue in Beverage Systems was a non-compete clause that allowed the trial court to modify its geographic scope if the court determined the original scope was unreasonable. The trial court, however, declined to shrink the agreement’s scope--even after finding it unreasonable. The Court of Appeals reversed, noting that the parties had expressly empowered the trial court to modify the agreement. Tailoring was appropriate, the COA held, because it “makes good business sense and better protects both a seller’s and purchaser’s interests in the sale of a business . . . . in a rapidly changing economy.”

But The Supreme Court rejected the COA’s premise. Because “parties cannot contract to give a court power it does not have,” the parties could not authorize the trial court to modify the agreement. “Allowing litigants to assign to the court their drafting duties as parties to a contract would put the court in the role of scrivener," the Court held. "We see nothing but mischief in allowing such a procedure.”

So it seems that court-may-modify clauses in non-compete agreements are now unenforceable in North Carolina.

COA Confirms That Any Appeals in Suits Designated Complex Business Cases After October 1, 2014 Must Go to the NC Supreme Court, or Face Dismissal

Today the Court of Appeals issued a decision addressing Session Law 2014-102, the 2014 Business Court Modernization Act, which requires that appeals in matters that are designated as mandatory complex business cases go straight to the NC Supreme Court.  The case is Christenbury Eye Center v. Medflow, Inc. and Riggi.  

This case involved a dispute between Christenbury, which offered opthalmalogic and eye services, and Medflow, which provided medical records management software and was founded by Riggi. Christenbury filed a Complaint on September 22, 2014 against Medflow and Riggi, alleging that they  breached an agreement to further develop and resell the software platform to other ophthalmological practices by failing to pay royalties owed to Christenbury. The case was designated as a mandatory complex business case on October 29, 2014. 

Judge Gale granted Medflow and Riggi's motions to dismiss Christenbury's claims for breach of contract and unfair and deceptive trade practices.  Christenbury appealed to the Court of Appeals.

The COA found that it lacked jurisdiction to consider the appeal, explaining that "[i]n 2014, our General Assembly enacted Chapter 102 of the 2014 North Carolina Session Laws, which, among other things, amended N.C. Gen. Stat. § 7A-27 so as to provide a direct right of appeal to the Supreme Court from a final judgment of the Business Court.[.]"  The Court further concluded that the effective date of the 2014 amendments to N.C. Gen. Stat. § 7A-27(a)(2) was October 1, 2014, and any case designated as a mandatory complex business case after that date (whether it was filed before that time or not) was subject to the 2014 amendments to N.C. Gen. Stat. § 7A-27(a)(2).

There are certainly myriad cases currently pending in Business Court that will lead to appeals.  Just remember that if your case was designated after the magic date, you'll face dismissal (and likely lose your right to appeal due to untimeliness) if you don't go straight to the Supreme Court.

And....we're back!

After a bit of a hiatus, the NC Appellate Blog is back to bring you (hopefully) quick and useful summaries of state appellate court decisions that relate to civil and business litigation...and anything else we think is particularly interesting for litigators in North Carolina, including judicial elections and appointments.  We hope you'll follow us and send us any comments or questions you may have!